Banks still in profit from insurance mis-selling

A girl holding a balloon walks past a bank branch of HSBC in St Helier, Jersey November 11, 2012.Stefan Wermuth

LONDON (Reuters) - Britain's banks have still profited from the sale of flawed loan insurance policies, even after lifting estimates for the compensation bill to more than 14 billion pounds, according to data from one bank and industry sources.

HSBC (HSBA.L), Britain's biggest bank, this week raised its provision for payment protection insurance policies to $2.4 billion (1.6 billion pounds), but revealed it had sold $4.1 billion worth of the products since 2000.

It is the only bank to publicly estimate its income from PPI and its provision is regarded as the most conservative of the top lenders, suggesting banks as a whole have still made a net gain from the sale of the products intended to give borrowers a guarantee of being able to pay back a loan.

Lloyds Banking Group (LLOY.L), Royal Bank of Scotland (RBS.L) and Barclays (BARC.L) declined to say how much income they had made from sales of PPI products, which became controversial because they were often sold to people who did not want or need the protection.

Top bank executives held a conference call on Thursday to discuss whether to continue lobbying Britain's financial regulator to set a deadline on when customers can make PPI claims.

The call ended without a firm decision and talks will resume in coming weeks, a person involved in the discussions said. Banks want to cut off claims by April 2014, which the regulator has said it will consider, but executives have told Reuters they are pessimistic about their chances of success.

HIGHLY PROFITABLE

Banks could end up paying more than 20 billion pounds to compensate customers, industry sources have said.

Consumer group Which? estimates consumers have spent more than 50 billion pounds on PPI policies over the last 16 years and policies were highly profitable - the Competition Commission has estimated they delivered a return on equity of 490 percent.

PPI has become the biggest mis-selling scandal to hit UK banks and they have repeatedly underestimated the scale of the problem.

Natalie Ceeney, who is dealing with complaints as head of the Financial Ombudsman Service, this week told Reuters banks could be paying out to customers for years to come. She told lawmakers in January compensation paid by banks so far "doesn't come anywhere near the profits made from PPI".

About 45 million PPI policies are estimated to have been sold by banks.

HSBC said in its annual report this week it sold 5.4 million policies since 2000 and average compensation per successful claim was 1,550 pounds. Average payouts across the industry have been estimated at 2,500 pounds.